Expert: USMCA Auto Parts Tariff Will Stay at Zero; Expects Deal for Canadian Aluminum

He said he "was a bit surprised" when the EU received a shift from 25% plus MFN on autos and auto parts to a flat 15%.

"Japan and Korea got 15 plus whatever the general rate tariffs are," he said in a phone interview. "I’m not sure those parties understood all of what everybody got. Japan’s sitting at 17.5% right now, and I think their understanding is that they agreed to 15%."

He said South Korean negotiators are in Washington again this week, and he expects they'll press for a flat 15% in the auto sector, like the EU has.

The lack of clarity on what these back-of-napkin details will mean is, "in some ways ... why you see Mexico and Canada holding out."

The trade group for the Detroit automakers has complained about the within-quota tariff for U.K. automobiles of 10%, and its CEO, Matt Blunt, told reporters: "Any deal that charges a lower tariff for Japanese imports with virtually no U.S. content than the tariff imposed on North American-built vehicles with high U.S. content is a bad deal for U.S. industry and U.S. autoworkers."

The United Autoworkers union said: "The UAW is deeply angered by the Trump administration’s announced trade deal with Japan. What we’ve seen so far makes one thing clear: American workers are once again being left behind." It also said, "We know tariffs can work -- but the execution here falls far short. Shifting timelines and moving goalposts have undermined business confidence and delayed investment. So far, only GM has stepped up with serious reshoring efforts."

In addition to 25% tariffs on GMs and Fords assembled in Mexico or GM vehicles assembled in Canada, U.S. assembly is becoming more expensive due to 50% tariffs on steel and aluminum. The tariffs on steel drove up the price even for domestic steel, and automakers went from paying no tariff on aluminum for the last several years, to 50%.

Ujczo said these are "the things we’ve been on the phone -- pretty much non-stop -- about."

He said he thinks "there's a sweet spot for a deal" on excluding Canadian aluminum from the 50% tariff. He said in order to add primary aluminum capacity in the U.S. to make up for Canadian imports, to have enough electricity to make the virgin metal, "you need the equivalent of seven new Hoover Dams."

Treasury Secretary Scott Bessent recently told an interviewer that Ford's tariff burden is due to its aluminum use, and that the treatment of Canadian aluminum is being negotiated.

Although U.S.-assembled cars get tariff breaks because there is no tariff on Mexican and Canadian components that meet the USMCA rule of origin, that break is supposedly temporary, until the Commerce Department is able to discern how much of the value of those parts is from the U.S.

Ujczo said he doesn't think that will ever come to pass. "I think the expectation when the dust settles, there will be a parts exemption [for autos] in USMCA," he said.

The other break is that tariffs will be refunded, up to 3.75% of the manufacturer's suggested retail price of the company's total models assembled in the U.S., for models assembled between April 3, 2025, and April 30, 2026, and then a tariff refund up to 2.5% of the MSRP of the company's U.S.-assembled models from May 1, 2026, through April 30, 2027. Those numbers are designed to offset the cost of auto parts that are not made in North America, but only if those inputs make up no more than 15% of the car's cost.

"I’ve affectionately called it the store credit," Ujczo said. While he believes Commerce has started the process of certifying automobiles, how much domestic content is in each model, Commerce staffers have been overwhelmed, between trade negotiations and Section 232 investigations that still are not complete.

The U.S. is working on Section 232 reports for lumber, medium- and heavy-duty trucks, processed critical minerals and derivative products, pharmaceuticals and active pharmaceutical ingredients, semiconductors and semiconductor manufacturing equipment, commercial aircraft and jet engines, polysilicon and its derivatives, and aerial drones and their parts.

"We were hearing semiconductors and pharmaceuticals coming at the end of July," Ujczo said, but that time came and went with no announcement.

The lumber investigation began a few weeks before the chips and pharma investigations, and Ujczo said he thinks the new, higher trade remedy duties may have covered most of the concerns. "My understanding is they are staying away from downstream products," he said.

But, he noted, all these sectoral tariffs are undermining the administration's goal of expanding manufacturing.

"How do you get reinvestment into the United States when major projects can’t plan for their material costs right now?"

But, for the "store credit," Ujczo said, the companies have to have those refunds by the end of 2025. "My only question: is it ready by the [end of the] third quarter?" He said that's seeming less likely.

Ujczo echoes the Detroit automakers' argument, that even a 17.5% tariff on Japanese or South Korean cars puts GM, Ford and Stellantis (Chrysler, Dodge, Jeep) -- and perhaps Tesla -- at a cost disadvantage when assembling cars in the U.S., given the higher cost of metal in the U.S.

Michigan State University professor Jason Miller, who studies supply chains, shared a chart Aug. 5 that said that 27.4% of Mexican auto parts exported in June, $2.8 billion worth, were dutiable, making it an 8% effective duty rate. The chart said that 25.8% of Canadian auto parts were dutiable, for an 8.7% effective duty rate.

However, Ujczo said the data from June could have a lag.

Ujczo said that even if a Mexican vehicle that qualifies for USMCA ultimately were to receive a 15% tariff rate, that could still make it more costly to produce than a vehicle in South Korea, once you consider the requirements of 75% North American content, 70% of the steel has to come from North America, which means it's still being hit with the inflated price that steel tariffs have created in North America.

The federal government estimated that 40% of the value of vehicles assembled in Mexico and Canada is likely to be U.S. content, and if that were true, it would give those vehicles an effective 9% rate.

"I don't think the math works, if your goal is to promote domestic and North American auto assembly," Ujczo said. If Mexican cars were subject to a 15% rate, even if they don't qualify for USMCA, and the Section 301 shipping action added to the costs for cars being sent from Asia and Europe, that might put Mexican production less than 1% ahead of some competitors' costs.

"When these numbers are this close it’s not a clear differentiator," he said. "That's the real problem with the 15% auto tariff." He said that, in the president's desire to seal deals, "they have not given U.S. automakers enough of a cushion at this stage."

Ujczo said Canada and Mexico didn't agree to deals in July because they couldn't accept what was on the table. He said Mexico was wise, in a way, to punt until they saw what everybody else received. But, he said, with a 90-day pause, their steel industries and auto industries "continue to take the hit."

He added that the administration's list of asks always gets longer, too.

He said Mexico has built good will with its action on narcotics trafficking. "Not retaliating was very important for Mexico. They’ve kept the temperature low," he said.

Ujczo said automakers don't build vehicles or make parts in Canada to get lower labor costs, and therefore, the administration doesn't understand why companies want to maintain production there.

"They have a tough time understanding why you would produce in Canada," he said. "That ignores that Canada is a market itself of 30 million [people]. And you have foreign exchange and tax advantages there as well."

He said Canada has tool and die production, which is a comparative advantage, and several of the Canadian facilities are among the companies' most productive factories.

Because most Canadian and Mexican exports are avoiding the reciprocal tariffs -- he said he's hearing 90% from Canadian sources, and a recent Bloomberg economics analysis said 82% of Mexican exports are USMCA-compliant -- that means there's not a lot of pressure on the U.S. economy from the actions on its USMCA partners.

"I think the U.S. doesn’t have to make any major gives, or accept any proposals, because the U.S. economy will not be hit" as long as those carve-outs are in place.

The uncertainty of future treatment of Canada is harming that country's business investment, he said.

He asked rhetorically: "How much longer can Canada and Mexico hold out?"

He said he expects a deal to come together between Canada and the U.S. to address steel, aluminum and automotive tariffs in days or weeks -- but he said that Canada is having a hard time accepting any tariff on metals quantities beneath a tariff rate quota.

"There’s significant domestic pressure in Canada to ratchet up the pressure" on the U.S., perhaps by restricting its energy exports.

"I do think the end result is the USMCA becomes the most valuable ticket" if you want to export to the U.S., he said, but he doesn't think it will settle the USMCA review next year.

"All roads are pointing to a very volatile review," he said.

He also said he's telling clients with operations outside North America that they shouldn't be complacent about the rates in the announced deals.

"One of the things that clients need to be aware of, there’s going to be misunderstandings and will those lead to blow-ups? All of a sudden, will we have a president throwing 50% tariffs onto the European Union? My fear is that there may be disagreements that turn into a huge maelstrom."

Given how sketchy the outlines of these deals are, it could be months before the two sides get them settled, he acknowledged, but said, "I’m hoping it’s weeks, and not months, for our clients."